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Friday, November 21, 2003

The Problem with 2200 seats -- Part 2

I am moving the discussion from the comments section of a previous post. Here is Vivek's comment

Actually, I think most applicants wouldn't be the very poor relatively speaking.
I suspect most applicants want the job because they are risk averse...they want the security of a government job. It ok to be risk averse, so can you pay the social cost of it.

By auctioning jobs you ensure the relatively better off among the lot pay to secure employment with perks. You use the money to modernize railways/ capital expenditure of governement (both will create more jobs). And you get rid of the queue. Highest bidder gets to be a gangman.

I think most applicants for the job were poor. I got home late around 11 pm on Saturday night. On the way back, I saw thousands of them sleeping on local train platforms. I did not know what was going on then, but I wondered how the number of homeless could shoot up so abruptly.

Regarding using the money raised from auctioning off the 2200 jobs: I am not sure I understand the arithmetic. Assume that the gangman jobs pay Rs 5000 a month. The net present value of a permanent job paying Rs 5000 a month cannot be more than Rs 500,000 or Rs 5 lakhs. That is an upper limit. Judging by the sample population I saw sleeping on the platforms, I would guess that they would be hard-pressed to come up with even Rs 25,000. But let us generously assume that 2200 of them could bid Rs 100,000 each. So the total sum raised would be Rs 22 crores (Rs 100,00 x 2200 or approximately US $5 million).

Rs 22 crores is probably about 0.001% of the total budget of the railways. It is so vanishingly small that it is not worth talking about. It is much less than the rounding errors usually seen in government undertakings. Precious little imporovement can be done with that sort of numbers.

But all this debate about auctioning is missing a more important point and that is the sheer economic waste of the entire exercise of filling 2200 low-level public sector jobs. Assume that each of the 0.65 million applicants spent an average Rs 400 on the whole exercise of getting to Mumbai from all over India and other expenses. Suppose it cost them 2 days per person. Therefore about Rs 260 million (US$ 6 million) was spent directly. Total days lost was 2 x 0.65 million, or 3,560 person years were lost.

Let's repeat that: Rs 260 million in direct cost and 3,560 person years lost. Assuming that per capita production in terms of purchasing power parity is $1,000, that translates into an opportunity cost of $ 3.5 million.

This is only one of a few thousand futile idiotic wasteful things that the people of poor countries such as India do. Add up the waste, and you could easily cross the $100 billion mark of waste. Is it any wonder that India is poor? I don't think so. India is poor for a set of very easily understandable reasons. Figuring out that set is very important and it is primary to figuring out the solution. One of the most essential tools for the whole exercise is a firm grasp of arithmetic. As John McCarthy of Stanford University repeatedly said, those who refuse to do arithmetic are doomed to speak nonsense. I pray that we teach our students the ability to do arithmetic.

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The oldest known source and most probable origin for the expression "baker's dozen" dates to the 13th century in one of the earliest English statutes, instituted during the reign of Henry III (r. 1216-1272), called the Assize of Bread and Ale. Bakers who were found to have shortchanged customers could be liable to severe punishment. To guard against the punishment of losing a hand to an axe, a baker would give 13 for the price of 12, to be certain of not being known as a cheat. Specifically, the practice of baking 13 items for an intended dozen was to prevent "short measure", on the basis that one of the 13 could be lost, eaten, burnt or ruined in some way, leaving the baker with the original dozen.

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Claus Vistesen is a 23 year old macroeconomist who is on the point of finishing his MSc in Applied Economics and Finance from the Copenhagen Business School. His primary research interests are international finance and international macroeconomics. Claus is especially interested in how the changing structure of global and national demographics impacts on local macroeconomic performance. Moreover - and as the wonk he ultimately is - he also takes a considerable interest issues and methodologies associated with econometrics, and this is an interest he intends to develop in his postgraduate research.

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Edward 'the bonobo' is a Catalan macroeconomist and economic demographer of British extraction, now based in Barcelona. By inclination he is a macroeconomist, but his deep-seated obsession with trying to understand the economic impact of contemporary demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".